Choppiness and Momentum Across Markets

SPEAKER_1 (0:02)

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Tom Keene (0:27)

Thierry Wizman joins right now. What we're really trying to do is get summary compendiums today briefed into the season. What is your single sentence three by five card summary of the cacophony of world events? Are they idiosyncratic or do you sum it together at Macquarie?

Thierry Wizman (0:45)

They're certainly not idiosyncratic. I can point to one where I think there's quite a lot of linkage and that's the protests in France and the rise in sovereign spreads in France. There's a bit of a doom loop happening in France here whereby, as sovereign spreads rise, it puts a lot more pressure on the government to reduce spending, but at the same time that pressure gets the people out in the streets and they demand that the government spend more. So there's a implicitly a little bit of a feedback mechanism there. Those two events are certainly not independent.

Tom Keene (1:14)

So on my coffee table at home is Eswar Prasad's book, The Doom Loop. Pretty cautious book. Is that where you are?

Thierry Wizman (1:24)

Yeah, because we got used during the European debt crisis, remember, to think about another doom loop. That was the doom loop between sovereign balance sheets and commercial bank balance sheets because the commercial banks, the banks owned a lot of sovereign debt. And of course, the governments you would think would be obligated to bail out the banks if in fact the banks' balance sheets got too stressed. So that was a doom loop between the banks and the sovereign. Here we have a doom loop between the bond market and the social protests. There's another potential doom loop too, right? I mean, every time yields go up or down very fast, the way they have in the last few months in the US., someone blows up. We saw it in 1974 with Franklin National. We saw it in 1984 with Continental Illinois. We saw it in 1994 with Orange County.

We saw it in 2023 with Silicon Valley Bank. I'm concerned that what puts a cap on the movement we've seen in the long end of the yield curve is not that the economy slows, because that's the wrong cause out. Yields are high because the economy is strong.

I'm concerned that we wake up in the next few weeks or months, and we see a major financial stress situation, maybe in a bank, maybe in a private credit company, and that's what puts the top in the yield.

Paul Sweeney (2:35)

Since we're talking international, I want to move to another continent now and talk Brazil for a moment, because Flavio Bolsonaro, Brazil's right-wing presidential candidate continuing to gain momentum here. If we say a victory for Bolsonaro, it's going to reach well beyond Brazil.

Thierry Wizman (2:51)

Yeah, this is about what's been happening in the region even before this election. But the trend has been towards every government that's had an election, that election has gone to the right, the center right, the populist right.

Every single one of those governments is now aligned with the US geopolitically and strategically, right? Argentina is, Chile is, Peru, Ecuador, Bolivia, Colombia, hopefully now Brazil after the second round of the election. Venezuela certainly could be, and of course, Mexico is aligned with the US by way of its economic relation. This has never happened, right? To have the whole hemisphere with the potential exception of Canada looking the same way, being aligned. I think this could be a golden age for Latin America. The reasons that we could see coming out of this, trade agreements, national security agreements, border security agreements, immigration agreements, everything good that countries should be doing with one another could happen over the next few years.

Tom Keene (3:45)

We're going to rip up the script here, folks, because what he just said, Terry Weissman just said is really important within the heritage of New York Wall Street.

There was a cottage industry years ago at Bear Stearns, Emi Shio, Terry Weissman and others of study of Latin America. All of our listeners and viewers look at Latin America is a multi-decade failed experience. Where do they finally pull themselves away from colonial idiocy and get to a better rule of law, a better respect for contract, which allows for the South American boom everybody's been waiting for from our childhood?

Thierry Wizman (4:26)

Yeah. Look, the first thing that they have to get rid of is the back and forth between left-wing governments and right-wing governments, right? We cannot have decades of flux where each country is not necessarily aligned with their own neighbors.